With the increased cost of living in Kenya, it is quite understandable why our saving culture is not about to rise any time soon. This is even truer after President Uhuru Kenyatta signed into law the 2018 Finance Bill. Life is about to get harder, people, survival is a must. Table banking sounds like a thing you should think about.
Away from savings, hard times call for desperate measures, in this case, borrowings. This is one of the reasons why a large percentage of Kenyans, especially the youths are wallowing in debts. From M-Shwari accounts to KCB M-Pesa, Branch and Tala among others. People are borrowing money from all these Apps and banks more than they are saving. It is quite possible to find one owing money to more than one App.
The cost of living as well as high rates of unemployment have contributed to this. It has also contributed to high rates of default. In June this year, 500,000 people were blacklisted for defaulting on these loans, a number that had risen from 150,000 in 2015.
Paying the defaulted loan does not mean you will get off the hook easily. Actually, the Credit Reference Bureaus still keep you on low credit radar with a low rating of up to 7 years! Yeah, you read that right. That shows how much trouble most of us are in. Being blacklisted by the CRB’s means you will not have access to loans from banks and other lending agencies.
The good news is there are ways to borrow money at a lower interest rate than the banks and mobile Apps are willing to give you. There are ways to save the little that you have, too, and with fewer regulations and greater returns than the banks. Welcome to Table Banking, ladies and gentlemen.
This might not be the first time you have had about table banking. The question, though, is if you have done more than just gearing and thinking about it. Have you thought about implementing it with a couple of your friends or colleagues?
What is table banking?
There is a lot of confusion between the definition of table banking with that of Chamas- there is a fine and thin line between the two. Some Chamas operate on a Merry-go-round basis where they give all the money they contribute to one or two member’s of the group every time they meet, on a rotational basis. In table banking, they lend the money they contribute to members at a small interest. Some Chamas will even buy household items for their member with the money contributed. What is done with the money depends on the foundation of the Chama.
Table banking, on the other hand, involves members contributing a certain amount of money either monthly or weekly- depending on what members agree- and lend the contributed amount to its members at a lower rate. The repayment terms are actually much friendlier than the traditional borrowing vehicles.
Do not confuse table banking with investment clubs either. Investment clubs involves pooling funds together as a group for investment purposes such as buying pieces of land or transport vehicles. However, some table banking groups have grown or evolved to investment clubs. I know of a colleague in such a group, that had initially started as a table banking group during their early career days but are now running an investment group worth millions of monies.
This is how table banking works
Once you have gathered your group of friends or colleagues or neighbors, agree on a few things.
- How often members will be meeting and contribution? – Will it be on a weekly basis, after every two weeks or on a monthly basis. Some groups have chosen to meet once or twice in a year, but they have a virtual group on WhatsApp where they keep each other updated. Such an arrangement is ideal for a closely knitted group that has no trust issues amongst themselves.
- What is the monthly contribution? – The sooner you agree on this the better for the group. All members need to agree on this. It should also not leave members struggling to contribute. You can start with a small amount like 500 shillings and increase the contribution as you progress.
- The repayment terms – Remember the aim of table banking is to offer lending and repayments terms that are better than those offered by traditional lending vehicles. Therefore, the lending rates and repayments terms have to be friendly. Some offer a 5% interest for 3-6 months, while others offer an annual interest rate of 8% – 10%. This depends on you as members as well as your abilities.
- What happens to the interest rate? – When people are re-paying what they have borrowed, they will pay back the principal amount and the interest rate. You need to agree what happens to the interest rate. You can reinvest it back to the group’s capital or distribute it among the members. The choices are endless really.
- Where to bank the money- You are working towards a structure that is less strenuous and easy for everyone. Therefore, a joint account will be ideal. You can sign up with any bank or SACCO for that. The mandate to withdraw any funds has to be set too.
- What happens in case a member defaults? – Decide on what happens to defaulters. It might not happen but you do not want to be caught off-guard when it does.
- Membership- Will you be admitting other people in the future or is it a closed group? If you will admit new members, what are the joining requirements?
- Exit policy- In case a member wants to leave the group what will happen? Well, mostly, the policy will vary from group to group. First, agree on what happens to their capital towards the group. If the member has any unpaid debt, will it be deducted from their total contribution or they repay it back first? It all depends on what you as members agree on.
That said, you can see table banking is not such a hard thing to do. Most of our parents are in these groups, but that does not mean you, as a youth, can’t be in one. Mobilize a number of people you trust and start a table banking group. By the time your group hits one year, you will have increased your capital and given each other a chance to save and lend at lower rates. You will also have access to quick cash in times of emergencies, which helps you avoid the tedious processes of getting a huge amount of loan from banks and SACCO’s.